The case involves outstanding secured loans granted to GN Terminal Enterprises Ltd (the ʺBorrowerʺ) by two funds managed by Argentem Creek Partners and Innovatus Structured Trade Finance S.a.r.l (together the ʺLendersʺ). In an unusual fact pattern, the Borrower is the operator of a port facility in Odessa, Ukraine. The loans are secured in favour of MPTL by a comprehensive collection of security interests over the assets of the port operator and affiliated companies (based in Cyprus, Switzerland, the UAE and Ukraine). The security was supported by personal sureties from the ultimate beneficial owners of the corporate group, Sergiy Groza and Volodomyr Naumenko (the “Defendants”).

Even before the full-scale Russian invasion of Ukraine in February 2022, the financing was in payment default, and the Borrower and Lenders had been discussing various options. The situation quickly deteriorated following the Russian invasion, and the Lenders had become increasingly concerned with a lack of transparency with respect to the port operations, and continued non-payment on the loans. Following multiple events of default, in December 2022, the Lenders instructed MPTL, acting as security trustee, to accelerate the outstanding debt and to commence enforcement action. The enforcement action has given rise to legal proceedings in a number of jurisdictions including Cyprus, Switzerland and Ukraine, where the Defendants and various of the companies involved have resisted enforcement.

In addition to those enforcement steps, MPTL was also instructed by the Lenders to commence arbitration proceedings against the Defendants, under the personal sureties, to secure judgments on the outstanding debt. Due to the Lenders’ concerns that assets of the Defendants (including those of the GNT corporate group) were being dissipated, MPTL was also instructed to apply for the WFO, which was duly granted on 13 January 2023. The aim of the WFO was to preserve access to assets in order to ensure any award granted in the arbitration proceedings would be capable of being enforced. The court hearing concerned an application by the Defendants to set aside the WFO on the basis that (1) there was no real risk of dissipation of assets, and (2) it was not just and convenient to make or continue the WFO.

Mr Justice Jacobs dismissed the Defendants' application and decided that the WFO should remain in place and not be discharged. Jacobs J considered that the principal issue to be determined was whether there was a real risk of dissipation of assets. MPTL put forward evidence and arguments to establish that there was such a risk. The main points were that:

• the Borrowers had consistently failed to register a pledge of shares in the UAE over the primary trading company. The judge agreed with MPTL’s contention that a failure by an obligor to perfect security was in itself evidence of a risk of dissipation.
• shortly after commencing enforcement action, shares in key operating companies said to be worth around US$14.5m were transferred away from the Borrower group to a company beneficially owned  by the Defendants (despite such transfers being prohibited under the Facility Agreement). The judge described these transfers as appearing to be ‘a classic case of dissipation of assets’; and
• claims by the Defendants that approximately US$100m worth of grain had been destroyed after the grain spoiled did not stand up to scrutiny, despite the Defendants providing purported documentary evidence of the destruction. The judge was satisfied that there was ‘plausible evidence’ that these documents were created after the event and that there was no evidence of a major operation to transport that quantity of grain from the port facility in Odessa to the alleged place of destruction. In summing up on this issue, Jacobs J said:

“I cannot of course reach any final conclusions as to what actual happened. I need only decide whether the evidence concerning the disappearance of the grain is solid evidence of a real risk of dissipation. I have no doubt that it is.”

In refusing the Defendants' application to set aside the WFO, Jacobs J said “I have no doubt that it is just and convenient to grant the injunction. This is a case in which Madison has cleared the “good arguable case” hurdle by some margin. It is also a case where there is in my view very powerful evidence of a real risk of dissipation. . .. Indeed, I regard the present case as one where the evidence is as strong as any that I have ever seen”. In his concluding remarks, Jacobs J remarked that “it is very apparent that [MPTL’s original application for the freezing order] was prepared with immense care and professionalism. It is clear that every effort was made to put matters fairly to the judge”.

The case illustrates that the role of a security trustee goes beyond merely holding security interests. It is an example of the lengths that some obligors may go to in an attempt to thwart the ability of the trustee to enforce and realise value from the security it holds. Trustees should be aware of steps they may need to consider taking in order to protect their security interests and to resist nefarious, obfuscatory and opportunistic behaviour. Whilst every enforcement scenario will be fact specific, trustees and investors will be reassured that the English courts are able to provide assistance and support when trustees are faced with obligors seeking to move or hide assets and to frustrate enforcement attempts.

The Hogan Lovells restructuring team advising the Argentem lenders is led by Alex Kay with support from senior associate Jonathan Morris. The litigation team from Hogan Lovells was led by partner Oliver Humphrey with support from counsel James Wise, senior associate Danny Knowles and associate Ingy Badawy. The Hogan Lovells trustee team advising MPTL is led by Kit Johnson, senior associate Axel Delaud, associate Izzy Bull and solicitor Brenda Rweyemamu.

Hogan Lovells’ market leading trustee advisory practice has a long track record in supporting trustees involved in complex and challenging situations during the life cycle of a debt transaction. We have over 20 years’ experience of advising trustees on defaults, enforcement and restructuring, as well as litigation involving obligors and stakeholders.

Authored by Kit Johnson.